The volatility of a security is the expected fluctuation of its price at any given time. The expectation is based on the asset's standard deviation from the historical mean.

The range of the price fluctuation determines the risk of holding the asset; a wider price range is more volatile and risky because the future value is less predictable. Volatility is not an indication of market direction necessarily, but it is important when valuing an asset because stability is more valuable.

Risk is one of the most important factors investors consider when making decisions about asset allocation--volatility is the mathematical expression of that risk. Investors, such as older individuals with less time to recover from any sudden losses, and are more concerned about income or stability, look for securities with low volatility. Alternatively, a younger investor who has more time and is interested in allowing their assets to grow more aggressively is more likely to invest in higher volatility assets because they can avoid liquidating security at a loss.

Volatility can also be considered a measurement of opportunity: a wider range of possible prices provides an investor with more chances to acquire an asset when it is cheap and sell it when it is more expensive. Therefore, it can be calculated with the help of Forex Volatility Calculator as shown in the above image.

6 views0 comments

Recent Posts

See All